What are Warren Buffett’s biggest investing rules?
  • Rule 1: Never lose money. This is considered by many to be Buffett’s most important rule and is the foundation of his investment philosophy. …
  • Rule 2: Focus on the long term. …
  • Rule 3: Know what you’re investing in.

Here’s Buffett’s take on the five basic rules of investing.

  • Never lose money. …
  • Never invest in businesses you cannot understand. …
  • Our favorite holding period is forever. …
  • Never invest with borrowed money. …
  • Be fearful when others are greedy.
What is Warren Buffett’s 90 10 rule?

The 90/10 strategy calls for allocating 90% of your investment capital to low-cost S&P 500 index funds and the remaining 10% to short-term government bonds
How does Warren Buffett read and analyze financial statements?

Return on Equity (ROE): This measures how much profit a company generates for each dollar of shareholder equity. Warren Buffett prefers companies with high and stable ROE over time. Earnings per Share (EPS): This measures the amount of profit that is attributable to each share of stock.
INCOME STATEMENT RULES OF THUMB:
1: Gross Margin →Equation: Gross Profit / Revenue →Rule: 40% or higher →Logic: Signals the company isn’t competing on price.
2: SG&A Margin →Equation: SG&A Expense / Gross Profit →Rule: 30% or lower →Logic: Wide-moat companies don’t need to spend much on overhead to operate.
3: R&D Margin →Equation: R&D Expense / Gross Profit →Rule: 30% or lower →Logic: R&D expenses don’t always create value for shareholders.
4: Depreciation Margin →Equation: Depreciation / Gross Profit →Rule: 10% or lower →Logic: Great businesses don’t need a lot of depreciating assets to maintain their competitive advantage.
5: Interest Expense Margin → Equation: Interest Expense / Operating Income → Rule: 15% or lower →Logic: Great businesses don’t need debt to finance themselves.
6: Income Tax Expenses → Equation: Taxes Paid / Pre-Tax Income → Rule: Current Corporate Tax Rate →Logic: Great businesses are so profitable that they are forced to pay their full tax load.
7: Net Margin (Profit Margin) → Equation: Net Income / Sales → Rule: 20% or higher → Logic: Great companies convert 20% or more of their revenue into net income.
8: Earnings Per Share Growth → Equation: Year 2 EPS / Year 1 EPS → Rule: Positive & Growing → Logic: Great companies increase profits every year.
BALANCE SHEET RULES OF THUMB:
9: Cash & Debt → Equation: Cash > Debt → Rule: More cash than debt → Buffett’s Logic: Great companies don’t need debt to fund themselves.
10: Cash & Debt → Equation: Cash > Debt →Rule: More cash than debt →Logic: Great companies generate lots of cash without needing much debt.
11: Adjusted Debt to Equity →Equation: Total Liabilities / Shareholder Equity + Treasury Stock →Rule: < 0.80 →Logic: Great companies finance themselves with equity.
12: Preferred Stock → Rule: None → Logic: Great companies don’t need to fund themselves with preferred stock.
13: Retained Earnings → Equation: Year 1 / Year 2 → Rule: Consistent growth →Logic: Great companies grow retained earnings each year.
14: Treasury Stock Rule: Exists → Logic: Great companies repurchase their stock.
CASH FLOW STATEMENT:
15: Capex Margin →Equation: Capex / Net Income → Rule: <25% → Logic: Great companies don’t need much equipment to generate profits.
Caveats: There are plenty of exceptions to these rules. CONSISTENCY IS KEY!